NILES, IL -- (Marketwire) -- 12/07/12 -- MFRI, Inc. (NASDAQ: MFRI) announced today financial results for the third quarter and nine months ended October 31, 2012. Third quarter net sales were $58 million compared to $71 million in the prior-year quarter; net income in the quarter was $0.5 million or $0.07 per diluted share, compared to net income of $0.7 million or $0.10 per diluted share, in the prior-year quarter.

FISCAL QUARTER ENDED OCTOBER 31, 2012

SALES - Sales were $58 million in the current quarter down from $71 million in the prior-year quarter. Piping systems sales decreased $8.9 million in the quarter driven by a decline in U.S. sales partially offset by an increase in sales in the Middle East. Filtration products' sales decreased by $3.3 million due primarily to reduced demand for fabric filters.

GROSS PROFIT - Gross profit was $11.4 million in the current quarter down from $12.4 million in the prior-year quarter mainly due to the sales decrease in filtration products. Even with 18% less sales than the prior year quarter, gross margin increased 2 percentage points. Higher volume for both piping systems delivered by the U.A.E. facility and industrial process cooling led to the increased margin result. In response to lower demand for fabric filters and domestic piping systems, staff was reduced to match market needs. In addition, the filtration group has replaced some key management, increased marketing activities to drive sales growth and is actively sourcing lower cost but high quality materials to improve margins.

EXPENSES - Operating expenses increased 6% to $10.8 million in the current quarter from $10.2 million in the prior-year quarter. This increase was due to start-up costs of $209 thousand for the Saudi Arabia facility, $170 thousand higher non-cash deferred compensation expense, $97 thousand for audit, tax consulting and other professional service expenses and one-time domestic severance payments partially offset by a reduction in stock-based compensation expense.

NET INCOME - The third quarter produced net income of $0.5 million compared to net income of $0.7 million in the comparable prior-year's quarter.

YEAR-TO-DATE NINE MONTHS ("YTD")

SALES - YTD net sales of $163.3 million decreased 13.5% from $188.7 million in the prior year. Piping systems sales decreased $11.6 million driven by a decline in U.S. sales in the second and third quarters partially offset by an increase in sales in the Middle East. Reduced market demand for fabric filters led to a decrease of $11.1 million in filtration products. Corporate and other decreased by $5.6 million mostly due to customer decisions to extend project completion dates. Industrial process cooling sales increased $2.9 million as order intake continued to improve.

GROSS PROFIT - Despite the 13.5% decrease in sales, gross margin improved by 2 percentage points to 19% of net sales from 17% of net sales in the prior year. Gross profit increased significantly in piping systems due to higher volume delivered by the U.A.E. and strong sales in industrial process cooling while filtration products gross profit decreased due to lower demand.

EXPENSES - General and administrative expenses increased 7% to $20.9 million YTD from $19.5 million in the prior-year YTD. The increase was due to start-up costs of $0.8 million for the Saudi Arabia facility, $0.6 million for audit, tax consulting and other professional service expenses, higher non-cash deferred compensation expense partially offset by a reduction in stock-based compensation expense.

TAXES - The Company's consolidated effective tax rate was (8)% for the nine months ended October 31, 2012, which was effected primarily by the change in the mix of the projected tax-free earnings in the U.A.E. versus total projected earnings and losses.

NET LOSS - Net loss was $3 million in 2012 compared to a net loss of $2.6 million in the comparable prior-year.

CURRENT STATUS
BACKLOG - The Company's backlog has increased steadily over the past 14 quarters. The October 31, 2012 backlog rose $19 million or 23% to $102 million from January 31, 2012. Strong bookings during November in piping systems and filtration products led to an estimated 31% increase in backlog from October to November. November's backlog of $134 million is the highest since the fall of 2008.

RECENT DEVELOPMENTS - On November 26, 2012, the Company announced that Perma-Pipe Saudi Arabia received orders totaling over $23 million to supply engineered and insulated piping products for the chilled water distribution system utilized for a major expansion of the Haram Sharif in Mecca, Kingdom of Saudi Arabia. Production is expected to begin in December 2012 and continue through mid-2013. In addition, filtration products received major orders in November valued at approximately $13 million. These filtration orders are expected to commence production in the second quarter of 2013 and be complete by the end of 2014.

David Unger, CEO, commented, "I am very pleased with our success in securing the opportunity to furnish our products in Saudi Arabia. Expanding our focus to the Saudi Arabian infrastructure, industrial and oil and gas markets fits well with the overall implementation of our business strategy at Perma-Pipe. I am also pleased to note our recent large order wins in filtration products which will give a boost to this segment over time."

Brad Mautner, President and COO, said, "Even with significant volume declines from the prior year in both the quarter and year-to-date, we still increased gross profit margin and were able to produce a profitable quarter. In addition, we are focusing on cost control and productivity improvement. Importantly, backlog is up 16% from a year ago and 31% from October to November. Even given the uncertainty, regarding the U.S. and European economic climate, the strong backlog position should provide a foundation for improved results going forward. We are also very pleased to now see the beginnings of meaningful success from our Saudi Arabia initiative."

MFRI, Inc. is a multi-line company engaged in the following businesses: pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling and other applications; custom designed industrial filtration products to remove particulates from dry gas streams; industrial process cooling equipment to remove heat from molding, printing and other industrial processes; and installation of heating, ventilation and air conditioning for large buildings.

Form 10-Q for the period ended October 31, 2012 will be accessible at www.sec.gov and www.mfri.com. For more information visit the Company's website or contact the Company directly.

Statements and other information contained in this announcement which can be identified by the use of forward-looking terminology such as "anticipate," "may," "will," "expect," "continue," "remain," "intend," "aim," "should," "prospects," "could," "position," "future," "potential," "believes," "plans," "likely," "seems," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties include, but are not limited to, economic conditions, market demand and pricing, competitive and cost factors, raw material availability and prices, global interest rates, currency exchange rates, labor relations and other risk factors.

This announcement may also contain certain non-GAAP financial information that management believes is helpful in understanding our business. This financial information should not be considered as an alternative to net (loss) income or any other GAAP measurement of performance.